President Ranil Wickremesinghe’s well-received address at the Annual Meeting of the Asian Development Bank (ADB) Board of Governors at the ADB headquarters in Manila, Philippines, in his capacity as Sri Lanka’s Finance Minister and Chair of the Annual Meeting, was a stark and realistic assessment of the socio-economic issues facing the entire world, not just Asia.
There is a notion that the economic crisis currently faced by Sri Lanka is unique. Although some aspects of it may not be found anywhere else, the world as a whole is facing an unprecedented economic downturn.
Indeed, as President Wickremesinghe said in his ADB address, the supply chain shocks created by the Covid-19 pandemic have been compounded with the prices of global commodities mainly food, fuel and fertiliser skyrocketing due to the Ukraine war as the two warring parties are key producers of these commodities. Higher food and energy prices have stifled the growth of the middle class and resulted in further insecurity among the vulnerable communities in the Indian Ocean Region (IOR) countries, as seen in Sri Lanka.
The President said that there has been a spike in sovereign debt distress across the emerging markets. If this is not promptly addressed, it risks creating a contagion of debt distress that could threaten growth and financial stability across all economies, emerging and developed. Countries with pre-existing economic vulnerabilities such as Sri Lanka, will be among the most affected.
In the light of the need for debt restructuring for countries such as Sri Lanka to secure further aid, the President urged creditors and debtor nations to work collectively in an equitable manner to ensure economic and financial stability across the region.
Since many other countries in the region such as Pakistan and Bangladesh have much the same problems, they will be keenly watching developments in Sri Lanka to see how it attempts to resolve the economic crisis. But Sri Lanka, or any other developing country with a mounting pile of debt, cannot accomplish this task alone.
As the economic crisis includes both domestic policy elements as well as external shocks, it follows that the resolution of the crisis also requires both domestic efforts and the support of external partners. Hence the need for assistance from the likes of the ADB and the International Monetary Fund (IMF). Sri Lanka has thus reached a Staff Level Agreement (SLA) with the IMF on a four-year program supported by the Extended Fund Facility (EFF).
As we have mentioned in these spaces several times, this will not be a pain-free or easy process by any means. The IMF has called for an ambitious and comprehensive package of reforms under seven core areas that will help restore the sustainability of public finances.
The President has already spoken of having to undertake “deep and painful reforms”. Undertaking such an unprecedented fiscal effort in the present socio-economic circumstances will certainly not be a walk in the park. Protecting the underprivileged sections of society, whilst implementing these reforms will also prove to be very challenging.
As one of the most respected and leading elder statesmen of the world, the President has a ringside seat with regard to the evolving geopolitics in Asia and elsewhere. In his ADB address, the President explained how the Ukraine war and the US-China rivalry, spurred on by military, trade and political differences, have led to a breakdown in cooperation among the nations of the world. Added to this geopolitical rivalry are the droughts, floods and pandemic which are still present in parts of Asia.
The world must indeed pay more attention to the climate change crisis, which most recently manifested in the form of massive floods in Pakistan. In this context, the President’s proposal to the ADB for the establishment of a “Climate Change University” in Sri Lanka is most timely and relevant as it will bring together researchers and experts on this crucial subject to study viable solutions.
As the President implied, the developed world must take a more responsible role in mitigating climate change and new regional alliances cutting across various geopolitical rivalries must also play a major role in this regard.
What is not in doubt, in the words of the President, is that the “resolution of these major economic and environmental issues is unfortunately interwoven with the global geopolitical crisis”. It is therefore vital, especially for the smaller economies in Asia and elsewhere, to transcend the geopolitical barriers to resolve issues such as climate change.
Sri Lanka has prudently adopted a foreign policy that favours no country or bloc, being a friend to all. It is well-known that the two regional powers – India and China – have geopolitical concerns with regard to IOR countries such as Sri Lanka and the Maldives. So far, Sri Lanka has managed to walk a fine line between these two countries, maintaining excellent relations with both. This should be leveraged in issues such as debt management/restructuring and debt sustainability as well as evolving solutions for climate change.
Intra-Asian as well as global cooperation could be the only answer to the multitude of economic, environmental and energy issues facing the entire world. No country, not even the most highly developed ones, can afford to face these problems alone. As the President surmised in his ADB speech, the future could be bleak for Asia and other continents if they do not address these critical issues together in a spirit of cooperation. Individual nations and institutions such as the ADB must rise to the occasion and evolve viable solutions to the current global woes to ensure prosperity for the future generations.